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  • Airlines as bad a RRs but deemed necessary?

  • Pertaining to all railroading subjects, past and present, in New Jersey
Pertaining to all railroading subjects, past and present, in New Jersey

Moderator: David

 #1005990  by carajul
 
I was reading some economic news and American Airlines has filed for bk due to crushing debt and not earning a penny in over a decade. I understand the fed gov't sees airlines as necessary to keep the economy moving, and I'd agree that they are.

But I also started to think that the pax airline industry is no better financially that the pax rr industry was. Simply put, I don't think it's possible to make money with an airline. Labor and all overhead combined with low fares make it impossible. If airlines had to pay for traffic control and airports (the bill that the fed govt currently pays) there would simply be no way.

Now here is a question... from a corporate standpoint WHY do airlines such as AA bother to keep going? The purpose is to make money. Well if you haven't made a dime in 12 years I mean why not just give up the ghost? What is the point to continue to operate a company that is broke and is making nothing? Heck I wouldn't do it.
 #1006050  by econandon
 
I don't have the time to respond to this in full, but I wanted to make one point that relates to my comments in the railroad bankruptcy thread.

Note the details on AA's cash position:
Ray Neidl, aerospace analyst at Maxim Group, said a lack of progress in contract talks with pilots tipped the carrier into Chapter 11, though it has enough cash to operate. The carrier's passenger planes average 3,000 daily U.S. departures.

"They were proactive," Neidl said. "They should have adequate cash reserves to get through this." ...

In its bankruptcy petition filed in Manhattan, AMR reported assets of $24.72 billion and liabilities of $29.55 billion. The company has $4.1 billion in cash.

One bankruptcy rule is "don't wait too long," Harvey Miller, a partner at Weil, Gotshal & Manges representing AMR, said at a court hearing. "Don't wait until the course is irreversible. That is what American Airlines is doing today."
American Airlines files for bankruptcy. Kyle Peterson & Matt Daily - Reuters, 11/29/2011.

Emphases are mine.
 #1006363  by hutton_switch
 
I think airlines keep their passenger service with low fares running much the same way as the railroads did back in the 'fifties: lucrative cargo and air mail/small package contracts.
 #1009123  by Jishnu
 
hutton_switch wrote:I think airlines keep their passenger service with low fares running much the same way as the railroads did back in the 'fifties: lucrative cargo and air mail/small package contracts.
And international segments. Essentially International high yield segments subsidize domestic low fares for the legacy majors. Even SW and JetBlue are eyeing such as time goes on. Meanwhile airlines have also aggressively started reducing domestic inventory and outright eliminating huge loss-making segments, so as to be able to charge higher sector fares in a sustainable way - sort of like what the freight railroads did to get their tariffs more in line with their expenditures. Even SW is doing this aggressively now.

American had just delayed the day of reckoning until thus far. It was inevitable just as PC was inevitable. They will either manage to shed enough costs and assets to emerge a smaller and leaner outfit, or their assets will get divvied up among the other airlines or partially disposed off, and they will cease to exist.